Nepal has just experienced historic protests that resulted in the overthrow of the government. Sri Lanka in 2022 and Bangladesh in 2024 also experienced protests that ousted their leaders. That’s uprisings in three of the five smaller South Asian countries that border India. Why is that?
While Bangladesh, Bhutan, Maldives, Nepal, and Sri Lanka are unique, they share some similar characteristics. They are all strategically located, attract frequent attention for their ties with China and the United States, and have conducted democratic elections since 2008. By 2020, all five countries had grown their economies to at least lower middle-income status, according to the World Bank.
Without looking beyond the headlines, the structural conditions that contribute to domestic turmoil may be missed.
While poor governance in the countries certainly contributed to the political unrest in recent years, international policymakers should take this moment to reflect on the structural factors that contribute to these domestic convulsions. These factors need to be addressed by development finance institutions and influential powers so that South Asia and the wider Indo-Pacific can continue on a path of prosperity amid increasing uncertainty.
A recurring theme in the coverage of the crises in Nepal, Bangladesh, and Sri Lanka is their economic difficulties. Sri Lanka defaulted on its debt for the first time in its history and saw a significant proportion of the population begin reducing standard food consumption. Bangladeshi and Nepali citizens (mostly Gen Z) were fed up with diminishing employment options and elite corruption.
Counterintuitively, however, these economies have officially been growing. All were elevated from the World Bank’s low-income status to lower middle-income classification: Sri Lanka in 1997, Bangladesh in 2015, and Nepal in 2020. Sri Lanka even rose briefly to upper middle-income status in 2019. The price of success includes reduced access to concessional lending terms, among other changes.
A rally in Dhaka, Bangladesh, following the ousting of Sheikh Hasina as prime minister in 2024 (Rehman Asad/NurPhoto via Getty Images)
Without question, the government of Gotabaya Rajapaksa committed unforced errors in its management of the economy. Bangladesh also experienced a dollar crisis before Sheikh Hasina was ousted from office. Although such mis-governance was exacerbated by the Covid-19 pandemic and other global factors, the international development system that helps enable these countries to graduate economically may inadvertently leave them vulnerable to regress. In other words, the structural requirements associated with growth could encumber the middle-income transition of smaller South Asian countries.
Nepal and Bangladesh, for example, are still set to graduate from Least Developed Country (LDC) status in November 2026 but may not be able to delay this timeline despite their political upheaval. Among other smaller South Asian countries, Maldives sought to delay its LDC graduation which occurred in 2011, while Bhutan graduated from LDC status in 2023 and is aware of the risks involved with this achievement.
These challenges facing the economic transition of smaller South Asian states have been exacerbated by strategic competition involving the United States, China, and India. As a smaller state, Nepal seeks as much expert and material assistance from international organisations as well as large powers. Yet, there are structural constraints on its freedom of action. Specifically, in the course of pursuing its domestic-level interests – such as infrastructure development – Nepal risks becoming caught in this strategic competition. Indeed, Nepal has experienced the politicisation of its connectivity efforts ranging from participation in China’s Belt and Road Initiative to a grant under the US’s Millennium Challenge Corporation compact.
Candles beside the words reading “Long live martyrs” during a tribute to protestors killed in clashes this month in Kathmandu (Arun Sankar/AFP via Getty Images)
As Nepal stabilises its political institutions under interim leader Sushila Karki and plans for elections in March, it can learn lessons from Sri Lanka and Bangladesh about what to do –and what not to do.
The transitional leaders in both countries were not able to enjoy friendly relations with India, the most important bilateral relationship for all smaller South Asian countries due to their asymmetry of capabilities and India’s regional dominance. However, Anura Kumara Dissanayake was elected president in Sri Lanka as a reformist candidate and has succeeded in developing a positive relationship with India, including a defence agreement. Although it remains to be seen how Dissanayake will navigate thornier geopolitical issues with India, such as Chinese ship visits to Sri Lanka’s ports, Sri Lanka’s experience represents a possible model for Nepal to draw from.
Without looking beyond the headlines, the structural conditions that contribute to domestic turmoil – not only in Nepal but also in Bangladesh and Sri Lanka – may be missed. Smaller South Asian countries are experiencing strategic competition involving India, China, and the United States, as well as pressures from international institutions to graduate economically and accept more stringent terms. The development finance community would be wise to exercise special consideration for Nepal, Bangladesh, and Sri Lanka as they are all undergoing different stages of their political transformations.
Meanwhile, large powers do not often prioritise smaller states in their global strategies; however, many have invested significant resources in their relationships with Nepal, Bangladesh, and Sri Lanka. It is in their interests to seek stability in these countries as they focus on higher-priority objectives in the Indo-Pacific.
The article appeared in lowyinstitute
